VOL.

340, SEPTEMBER 21, 2000

735
Investors Finance Corporation vs. Autoworld Sales Corporation

September 21, 2000. G.R. No. 128990.

INVESTORS FINANCE CORPORATION, petitioner, vs.AUTO-WORLD SALES
CORPORATION,
and
PIO
BARRETTO
REALTY
DEVELOPMENT
CORPORATION, respondents.
*

Civil Law; Contracts; Evidence; Generally, the courts only need to rely on the face of
written contracts to determine the intention of the parties; Parol evidence is admissible to
show that a written document though legal in form was in fact a device to cover usury.The
pivotal issue therefore is whether the three (3) contracts all dated 9 February 1981 were
executed to implement a legitimate Installment Paper Purchase (IPP) transaction or
merely to conceal a usurious loan. Generally, the courts only need to rely on the face of
written contracts to determine the intention of the parties. However, the law will not
permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to
show that a written document though legal in form was in fact a device to cover usury. If
from a construction of the whole transaction it becomes apparent that there exists a corrupt
intention to violate the Usury Law, the courts should and will permit no scheme, however
ingenious, to becloud the crime of usury.
Same; Same; Same; Usury; The Usury Law recognizes the legitimate purchase of
negotiable mercantile paper by innocent purchasers.Indeed, the Usury Law recognizes the
legitimate purchase of negotiable mercantile paper by innocent purchasers. But even the
law has anticipated the potential abuse of such transactions to conceal usurious loans.
Thus, the law itself made a qualification. It would recognize legitimate purchase of
_________________
*

736

SECOND DIVISION.

SUPREME COURT REPORTS ANNOTATED

Investors Finance Corporation vs. Autoworld Sales Corporation

negotiable mercantile paper, whether usurious or otherwise, only if the purchaser had
no intention of evading the provisions of the Usury Law and that the purchase was not a
part of the original usurious transaction. Otherwise, the law would not hesitate to annul
such contracts.
Same; Same; Same; Same; In usurious loans, the creditor can always recover the
principal debt; Stipulation on the interest is considered void thus allowing the debtor to
claim the whole interest paid.While we do not dispute the appellate courts finding that
the first transaction was a usurious loan, we do not agree with the amount of
reimbursement awarded to AUTOWORLD. Indeed, it erred in awarding only the interest
paid in excess of the 12% ceiling. In usurious loans, the creditor can always recover the
principal debt. However, the stipulation on the interest is considered void thus allowing the
debtor to claim the whole interest paid. In a loan of P1,000.00 with interest at 20% per

annum or P200.00 per year, if the borrower pays P200.00, the whole P200.00 would be
considered usurious interest, not just the portion thereof in excess of the interest allowed by
law.
Same; Same; Same; Same; The pari delicto rule does not apply to usury cases which
entitle the borrower to recover the whole interest paid.Quite obviously, Anthony Que, the
President of AUTOWORLD, actively and knowingly participated in the execution of the
usurious loan transaction. As a seasoned businessman he must have been aware of the
consequences of his business dealings. But, although we find his actions extremely
reprehensible, we must abide by the principle laid down in Go Chioco v. Martinez where we
held that the pari delicto rule does not apply to usury cases which entitle the borrower to
recover the whole interest paid; otherwise, the avowed policy of discouraging usurious
transactions would not be served, for the mere invocation of the pari delicto rule would
allow the usurer to reap the benefits of his unlawful act.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.
Antonio R. Bautista & Partners for petitioner.
private respondents.

Pete Quirino-Quadra for

VOL. 340, SEPTEMBER 21, 2000

737
Investors Finance Corporation vs. Autoworld Sales Corporation

BELLOSILLO,J.:
INVESTORS FINANCE CORPORATION seeks a review of the Decision of the
Court of Appeals which ruled that the financing firm had entered into a usurious
loan transaction with Autoworld Sales Corporation, thus entitling the latter to
reimbursement of excess interest payments amounting to P2,586,035.44.
Petitioner Investors Finance Corporation, then known also as FNCB Finance
(now doing business under the name of Citytrust Finance Corporation), is a
financing company doing business with private respondent Autoworld Sales
Corporation (AUTOWORLD) since 1975. Anthony Que, president of AUTOWORLD,
also held the same position at its affiliate corporation, private respondent Pio
Barretto Realty Corporation (BARRETTO).
Sometime in August 1980 Anthony Que, in behalf of AUTO-WORLD, applied for
a direct loan with FNCB. However, since the Usury Law imposed an interest rate
ceiling at that time, FNCB informed Anthony Que that it was not engaged in direct
lending; consequently, AUTOWORLDs request for loan was denied.
But sometime thereafter, FNCBs Assistant Vice President, Mr. Leoncio Araullo,
informed Anthony Que that although it could not grant direct loans it could extend
funds to AUTOWORLD by purchasing any of its outstanding receivables at a
discount. After a series of negotiations the parties agreed to execute an Installment
1

Paper Purchase (IPP) transaction to enable AUTOWORLD to acquire the

additional capital it needed. The mechanics of the proposed IPP transaction was
1. (1)First, Pio Barretto (BARRETTO) would execute a Contract to Sell a parcel of land
in favor of AUTOWORLD for P12,999,999.60 payable in sixty (60) equal monthly
installments of P216,666.66. Consequently, BAR-RETTO would acquire
P12,999,999.60 worth of receivables from AUTO-WORLD;
________________
1

Decision of the Court of Appeals penned by Associate Justice Ruben T. Reyes, and concurred in by

Associate Justices Consuelo Ynares-Santiago and Romeo A. Brawner; Rollo, p. 100.

738

SUPREME COURT REPORTS ANNOTATED

Investors Finance Corporation vs. Autoworld Sales Corporation
1. (2)FNCB would then purchase the receivables worth P12,999,999.60 from
BARRETTO at a discounted value of P6,980,000.00 subject to the condition that
such amount would be flowed back to AUTOWORLD;
2. (3)BARRETTO, would in turn, execute a Deed of Assignment (in favor of FNCB)
obliging AUTOWORLD to pay the installments of the P12,999,999.60 purchase
price directly to FNCB; and
3. (4)Lastly, to secure the payment of the receivables under the Deed of Assignment,
BARRETTO would mortgage the property subject of the sale to FNCB.
2

On 17 November 1980 FNCB informed AUTOWORLD that its Executive

Committee approved the proposed IPP transaction. The lawyers of FNCB then
drafted the contracts needed and furnished Anthony Que with copies thereof.
On 9 February 1981 the parties signed three (3) contracts to implement the IPP
transaction:
3

1. (1)Contract to Sell whereby BARRETTO sold a parcel of land to AUTOWORLD,

situated in San Miguel, Manila, together with the improvements thereon, covered
by TCT No. 129763 for the price of P12,999,999.60 payable in sixty (60) consecutive
and equal monthly installments of P216,666.66.
2. (2)Deed of Assignment whereby BARRETTO assigned and sold in favor of FNCB all
its rights, title and interest to all the money and other receivables due from
AUTOWORLD under the Contract to Sell, subject to the condition that the
assignee (FNCB) has the right of recourse against the assignor (BARRETTO) in the
event that the payor (AUTOWORLD) defaulted in the payment of its obligations.
3. (3)Real Estate Mortgage whereby BARRETTO, as assignor, mort-gaged the property
subject of the Contract to Sell to FNCB as security for payment of its obligation
under the Deed of Assignment.
5

________________
2

The Deed of Assignment was with recourse against Barretto in case Autoworld failed to pay;

Records, p. 633.
3

Rollo, p. 67.

Records, p. 1256.

Rollo, p. 69.

VOL. 340, SEPTEMBER 21, 2000

739
Investors Finance Corporation vs. Autoworld Sales Corporation

After the three (3) contracts were concluded AUTOWORLD started paying the
monthly installments to FNCB.
On 18 June 1982 AUTOWORLD transacted with FNCB for the second time
obtaining a loan of P3,000,000.00 with an effective interest rate of 28% per
annum. AUTOWORLD and BARRETTO, as co-makers, then signed a promissory
note in favor of FNCB worth P5,604,480.00 payable in sixty (60) consecutive
monthly installments of P93,408.00. To secure the promissory note, AUTOWORLD
mortgaged a parcel of land located in Sampaloc, Manila, to FNCB. Thereafter,
AUTOWORLD began paying the installments.
In December 1982, after paying nineteen (19) monthly installments of
P216,666.66 on the first transaction (IPP worth P6,980,000.00) and three (3)
monthly installments of P93,408.00 on the second transaction (loan worth
P3,000,000.00), AUTOWORLD advised FNCB that it intended to preterminate the
two (2) transactions by paying their outstanding balances in full. It then requested
FNCB to provide a computation of the remaining balances. FNCB sent
AUTOWORLD its computation requiring it to pay a total amount of P10,026,736.78,
where P6,784,551.24 was the amount to settle the first transaction while
P3,242,165.54 was the amount to settle the second transaction.
6

_________________
6

Records, pp. 646, 958 and 1286.

Id., p. 27.

Covered by TCT No. 14377; Records, p. 25.

There seems to be a discrepancy between the amount of the outstanding balance (for purposes of

pre-termination of the two [2] transactions) stated in petitioners Statement of Account sent to Auto-world
(Records, p. 358) and the amount actually paid by Autoworld as stated in petitioners Memorandum filed
before the lower court (Records, p. 1245).
In its Statement of Account, petitioner claimed that for Autoworld to preterminate the two (2) transactions it still had
to pay a total of P10,026,736.78 where P6,784,551.24 was the balance due to settle the first transaction and
P3,242,165.54 was the balance due to settle the second transaction. However, in its Memorandum before the RTC,
petitioner alleged that Autoworld paid a total of P10,009,863.55, where P6,768,806.91 was the actual amount paid to
settle the first transaction

740

SUPREME COURT REPORTS ANNOTATED

Investors Finance Corporation vs. Autoworld Sales Corporation

On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the

latters computation of its outstanding balances. On 27 December 1982 FNCB
replied that it would only be willing to reconcile its accounting records with
AUTOWORLD upon payment of the amounts demanded. Thus, despite its
objections, AUTOWORLD reluctantly paid FNCB P10,026,736.78 through its UCPB
account.
On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments
in the total amount of P3,082,021.84. According to AUTOWORLD, it overpaid
P2,586,035.44 to settle the first transaction and P418,262.00 to settle the second
transaction.
10

11

12

13

14

_________________
while P3,241,056.64 was the actual amount paid to settle the second transaction.
Even the RTC made conflicting factual findings. On page 9 of its decision (Rollo, pp. 77-78) the RTC found that
Autoworld paid a total of P10,026,739.78 thus showing that it paid P6,784,551.24 for the first loan and P3,242,185.54
for the second loan. However, on page 18 of the same decision (Rollo, p. 86) the RTC found that Autoworld paid a total
of P10,009,863.55 thus showing that P6,768,806.91 was paid to settle the first loan while P3,241,056.64 was the
amount paid to settle the second loan.
A perusal of the Petition (Rollo, p. 15) and the Comment (Rollo, p. 128) however shows that both parties used and
cited the amount of P10,026,736.73 as the value actually paid by Autoworld (which means that P6,784,551.24 was the
amount paid to settle the first loan and P3,242,165.54 was the amount due to settle the second loan) hence, this
Decision will use P10,026,736.78 as the amount actually paid by Auto-world.
10

Autoworld point out that in computing the rebate on interests upon pre-termination of the contracts

petitioner should have used the diminishing balance method instead of the 78th method; Records, p.
637.
11

Id., p. 638.

12

Rollo, pp. 77-78.

13

Id., p. 93.

14

Apparently, adding the alleged overpayments (P2,586,035.44 + P418,262.00) would only yield a total

of P3,004,297.44 not P3,082,021.84. But since the Court of Appeals and private respondents designated

VOL. 340, SEPTEMBER 21, 2000

741
Investors Finance Corporation vs. Autoworld Sales Corporation

The parties attempted to reconcile their accounting figures but the subsequent
negotiations broke down prompting AUTOWORLD to file an action before the
Regional Trial Court of Makati to annul the Contract to Sell, the Deed of
Assignment and the Real Estate Mortgage all dated 9 February 1981. It likewise

prayed for the nullification of the Promissory Note dated 18 June 1982 and the Real
Estate Mortgage dated 24 June 1982.
In its complaint, AUTOWORLD alleged that the aforementioned contracts were
only perfected to facilitate a usurious loan and therefore should be annulled. FNCB
should refund the amounts of P2,586,035.44 as excess payment for the first
transaction and P418,262.00 as excess payment for the second transaction. AUTOWORLD also asked for P500,000.00 as exemplary damages and P100,000.00 as
attorneys fees.
FNCB argued that the contracts dated 9 February 1981 were not executed to
hide a usurious loan. Instead, the parties entered into a legitimate Installment
Paper Purchase (IPP) transaction, or purchase of receivables at a discount, which
FNCB could legally engage in as a financing company. With regard to the second
transaction, the existence of a usurious interest rate had no bearing on the
P3,000,000.00 loan since at the time it was perfected on 18 January 1982 Central
Bank Circular No. 871 dated 21 July 1981 had effectively lifted the ceiling rates for
loans having a period of more than three hundred sixty-five (365) days. FNCB also
prayed for
________________
P3,082,021.84 (see Rollo, pp. 93 and 128) as the total amount of overpayments, then such value shall
be considered the total excess payments. However, it cannot be denied that the Court of Appeals,
petitioner and private respondents all made use of the values P2,586,035.44 (as the amount paid to settle
the first transaction) and P418,262.00 (amount to settle the second loan), hence these values should also
be cited in the Decision. These two values were obtained from the computations of Auto-world where it
said that under the diminishing balance method with an interest rate of 14% per annum it should have
only paid petitioner P4,182,771.47 (Records, p. 642) instead of P6,768,806.91 to settle the first transaction,
thus it overpaid P2,586,035.44. It further claimed that under the same method of computing interests it
should have paid petitioner only P2,822,794.64 (Records, p. 643) instead of P3,241,056.64 to settle the
second transaction thus, it overpaid P418,262.00.

742

SUPREME COURT REPORTS ANNOTATED

Investors Finance Corporation vs. Autoworld Sales Corporation

P2,000,000.00 as moral damages and P500,000.00 as attorneys fees.

On 18 January 1985 FNCB filed a Third-Party Complaint against BARRETTO
based on the Deed of Assignment, which expressly provided that FNCB as assignee
had a right of recourse against BARRETTO as assignor in case AUTOWORLD
defaulted in its payments.
BARRETTO countered that it could not be held liable for AUTO WORLDS
alleged default in its payments since theDeed of Assignment, together with
the Contract to Sell and the Real Estate Mortgage, was simulated and perfected only
to facilitate a usurious loan. It prayed for P1,600,000.00 as damages and
P100,000.00 as attorneys fees.
15

16

On 11 July 1988 the Regional Trial Court of Makati ruled in favor of FNCB
declaring that the parties voluntarily and knowingly executed a legitimate IPP
transaction or the discounting of receivables. AUTOWORLD was not entitled to any
reimbursement since it was unable to prove the existence of a usurious loan. On the
other hand, it was ordered to pay FNCB P50,000.00 for attor-neys fees.
The Court of Appeals modified the decision of the trial court and concluded that
the IPP transaction, comprising of the three (3) contracts perfected on 9 February
1981, was merely a scheme employed by the parties to disguise a usurious loan. It
ordered the annulment of the contracts and required FNCB to reimburse
AUTOWORLD P2,586,035.44 as excess interest payments over the 12% ceiling rate.
However, with regard to the second transaction, the appellate court ruled that at
the time it was executed the ceil-ing rates imposed by the Usury Law had already
been lifted thus allowing the parties to stipulate any rate of interest. The appellate court deleted the award of P50,000.00 as attorneys fees in
17

18

_______________
15

Records, p. 228.

16

Id., p. 314.

17

Decision penned by Judge Lucia Violago Isnani, RTC-Br. 59, Makati City; Rollo, p. 89.

18

CA decision; Rollo, p. 100.

VOL. 340, SEPTEMBER 21, 2000

743
Investors Finance Corporation vs. Autoworld Sales Corporation

favor of FNCB explaining that the filing of the complaint against FNCB was
exercised in good faith. Hence, this petition of FNCB.
We stress at the outset that this petition concerns itself only with the first
transaction involving the alleged IPP worth P6,980,000.00, which was
implemented through the three (3) contracts of 9 February 1981. As to the second
transaction, which involves the P3,000,000.00 loan, we agree with the appellate
court that it was executed when the ceiling rates of interest had already been
removed, hence the parties were free to fix any interest rate.
The pivotal issue therefore is whether the three (3) contracts all dated 9
February 1981 were executed to implement a legitimate Installment Paper
Purchase (IPP) transaction or merely to conceal a usurious loan. Generally, the
courts only need to rely on the face of written contracts to determine the intention of
the parties. However, the law will not permit a usurious loan to hide itself behind a
legal form. Parol evidence is admissible to show that a written document though
legal in form was in fact a device to cover usury. If from a construction of the whole
transaction it becomes apparent that there exists a corrupt intention to violate the
Usury Law, the courts should and will permit no scheme, however ingenious, to
becloud the crime of usury. The following circumstances show that such scheme
was indeed employed:
19

First, petitioner claims that it was never a party to theContract to Sell between
AUTOWORLD and BARRETTO. As far as it was concerned, it merely purchased
receivables at a discount from BARRETTO as evidenced by the Deed of
Assignment dated 9 February 1981. Whether the Contract to Sell was fictitious or
not would have no effect on its right to claim the receivables of BARRETTO from
AUTOWORLD since the two contracts were entirely separate and distinct from
each other.
Curiously however, petitioner admitted that its lawyers were the ones who
drafted all the three (3) contracts involved which were executed on the same
day. Also, petitioner was the one who pro20

21

22

_______________
19

US v. Tan Quinco Chua, 39 Phil. 552 (1919).

20

Rollo, p. 12.

21

Records, p. 1256.

22

Id., pp. 629-635.

744

SUPREME COURT REPORTS ANNOTATED

Investors Finance Corporation vs. Autoworld Sales Corporation

cured the services of the Asian Appraisal Company to determine the fair market
value of the land to be sold way back in September of 1980 or six (6) months prior to
the sale. If it were true that petitioner was never privy to theContract to Sell, then
why was it interested in appraising the lot six (6) months prior to the sale? And why
did petitioners own lawyers prepare the Contract to Sell?Obviously, petitioner
actively participated in the sale to ensure that the appraised lot would serve as
adequate collateral for the usurious loan it gave to AUTOWORLD.
Second, petitioner insists that the 9 February 1981 transaction was a legitimate
IPP transaction where it only bought the receivables of BARRETTO from
AUTOWORLD amounting to P12,999,999.60 at a discounted price of P6,980,000.00.
However, per instruction of petitioner in its letter to BARRETTO dated 17
November 1980 the whole purchase price of the receivables was to be flowed back
to AUTOWORLD. And in its subsequent letter of 24 February 1981 petitioner also
gave instructions on how BAR-RETTO should apply the proceeds worth
P6,980,000.00, thus
23

24

Gentlemen:
This serves to inform you of the various application of the proceeds (P6,980,000.00) of your
real estate transaction per your authoriza-tion/letter dated 2.10.81:
1. 1.P1,937,884.20Paid to Paramount Finance Corp. on Feb. 16, 1981, inclusive of
P2.00 SC for Managers Check.

2. 2.P111,818.87Paid to Agcaoili and Associates of Feb. 16, 1981 inclusive of P2.00

SC for Managers Check for the preparation of documents, legal review,
registration and transfer of ownership.
3. 3.P3,179,700.00Paid to FNCB Finance on Feb. 20, 1981 for full payment of DB
transaction (Account No. 06156)
4. 4.P3,108.40Payment for the appraisal fee conducted by the Asian Appraisal
Company, Inc.
_____________
23

The real estate valuation report pegged the market value of the property at C. Palanca St., San Miguel

Manila, at P11,833,000.00; Records, p. 1079.

24

Records, p. 1087.

745

VOL. 340, SEPTEMBER 21, 2000

745
Investors Finance Corporation vs. Autoworld Sales Corporation
1. 5.P100.00Payment for the title search fee conducted by Agcaoili and Associates.
2. 6.P2,500.00Payment for legal and professional fee (Agcaoili and Associates)
3. 7.P638,601.60Payment to FNCB Finance for the partial payment of DB
transaction (Account No. 40150sold units)
4. 8.P122,640.00Payment to FNCB Finance for the partial payment of DB
transaction (Account No. 406149sold units)
5. 9.P983.646.93Balance after application, Payable to Pio Barreto Dev., Inc.
P6,980,000.00Total
Should you need any clarification on the matter, please do not hesitate to call on the
undersigned.
Very truly yours,
L. V. Araullo, Asst Vice-President

25

It can be seen that out of the nine (9) items of appropriation stated above, Item Nos.
2-8 had to be returned to petitioner. Thus, in compliance with the aforesaid letter,
BARRETTO had to yield P4,058,468.47 of the P6,980,000.00 to petitioner to settle
some of AUTO WORLDS previous debts to it. Any remaining amount after the
application of the proceeds would then be surrendered to AUTOWORLD in
compliance with the letter of 17 November 1980; none went to BARRETTO.
The foregoing circumstances confirm that the P6,980,000.00 was really an
indirect loan extended to AUTOWORLD so that it could settle its previous debts to
petitioner. Had petitioner entered into a legitimate purchase of receivables, then
BARRETTO, as seller, would have received the whole purchase price, and free to
26

dispose of such proceeds in any manner it wanted. It would not have been obliged to
follow the Application of Proceeds stated in petitioners letter.
_________________
25

Id., p. 1090.

26

CA Rollo, Plaintiff-Appellants Brief, pp. 12-16.

746

SUPREME COURT REPORTS ANNOTATED

Investors Finance Corporation vs. Autoworld Sales Corporation

Third, in its 17 November 1980 letter to BARRETTO, petitioner itself designated

the proceeds of the IPP transaction as a loan. In that letter, petitioner stated
that the loan proceeds amounting to P6,980,000.00 would be released to
BARRETTO only upon submission of the documents it required. And as previously
mentioned, one of the required documents was a letter agreement between
BARRETTO and AUTOWORLD stipulating that the P6,980,000.00 should be
flowed back to AUTOWORLD. If it were a genuine IPP transaction then
petitioner would not have designated the money to be released as loan proceeds
and BARRETTO would have been the end recipient of such proceeds with no
obligation to turn them over to AUTOWORLD.
Fourth, after the interest rate ceilings were lifted on 21 July 1981 petitioner
extended on 18 June 1982 a direct loan of P3,000,000.00 to AUTOWORLD. This
time however, with no more ceiling rates to hinder it, petitioner imposed a 28%
effective interest rate on the loan. And no longer having a need to cloak the
exorbitant interest rate, the promissory note evidencing the second transaction
glaringly bore the 28% interest rate on its face. We are therefore of the impression
that had there been no interest rate ceilings in 1981, petitioner would not have
resorted to the fictitious IPP transaction; instead, it would have directly loaned
the money to AUTOWORLD with an interest rate higher than 12%. Gregorio
Anonas, Senior Vice President of petitioner, effectively admitted that it only
employed discounting of receivables due to the ceiling rates imposed by the Usury
Law. Thus he testified
27

28

29

Q:

And is it not a fact further that FNCB Finance at the time could not or
would not want to extend direct loan because of a ceiling fixed by the
Usury Law on interest?
We havent at that time giving direct loan, it is a discounting
business.
You mean never have you extended direct loan?
We did at a certain period of time and then we stopped, we go to
discounting business because we transferred to direct loan.

A:
Q:
A:

______________
27

Records, p. 1087.

28

Id., p. 1286.

29

Id., p. 646.

747

VOL. 340,
747
SEPTEMBER 21,
2000
Investors Finance Corporation vs. Autoworld Sales Corporation
Q:
After the ceiling was removed, ceiling on interest
was removed, you again, FNCB, extended direct
loan, correct?
A:
Yes, sir.
Q:
Shall we say that the reason why you did not extend
direct loan was because you did not want to be
confined on the ceiling on interest under Usury
Law?
A:
Probably yes, because as you know the cost, in the
operating cost of finance company is extremely
different from a bank and we cannot survive, and
this normally has been the case.
Q:
And so, therefore, the only way you could generate
more income for your company would be to
encourage discounting of receivables?
A:
That was our business. It is not to generate more
income, that is our business, x x x x
30

Thus, although the three (3) contracts seemingly show at face value that petitioner
only entered into a legitimate discounting of receivables, the circumstances cited
prove that the P6,980,000.00 was really a usurious loan extended to AUTOWORLD.
Petitioner anchors its defense on Sec. 7 of the Usury Law which states
Provided, finally, That nothing herein contained shall be construed to prevent the purchase
by an innocent purchaser of a negotiable mercantile paper, usurious or otherwise, for
valuable consideration before maturity, when there has been no intention on the part of
said purchaser to evade the provisions of the Act and said purchase was not a part of the
original usurious transaction. In any case however, the maker of said note shall have the
right to recover from said original holder the whole interest paid by him thereon and, in
any case of litigation, also the costs and such attorneys fees as may be allowed by the court.

Indeed, the Usury Law recognizes the legitimate purchase of negotiable mercantile
paper by innocent purchasers. But even the law has anticipated the potential abuse
of such transactions to conceal usurious loans. Thus, the law itself made a
qualification. It would recognize legitimate purchase of negotiable mercantile paper,
whether usurious or otherwise, only if the purchaser had no
_______________
30

748

TSN, 22 July 1986, pp. 18-19.

SUPREME COURT REPORTS ANNOTATED

Investors Finance Corporation vs. Autoworld Sales Corporation

intention of evading the provisions of the Usury Law and that the purchase was not
a part of the original usurious transaction. Otherwise, the law would not hesitate to
annul such contracts. Thus, Art. 1957 of the Civil Code provides
Contracts and stipulations, under any cloak or device whatever, intended to circumvent the
laws on usury shall be void. The borrower may recover in accordance with the laws on
usury.

In the case at bar, the attending factors surrounding the execu-tion of the three (3)
contracts on 9 February 1981 clearly establish that the parties intended to transact
a usurious loan. These contracts should therefore be declared void. Having declared
the transaction between the parties as void, we are now tasked to determine how
much reimbursement AUTOWORLD is entitled to. The Court of Appeals, adopting
the computation of AUTOWORLD in its plaintiff-appellants brief, ruled
According to plaintiff-appellant, defendant-appellee was able to collect P3,921,217.78 in
interests from appellant. This is not denied by the appellee. Computed at 12% the effective
interest
should
have
been
P1,545,400.00. Hence,
appellant
may
recover
P2,586,035.44, repre31

32

33

_______________
31

According to Autoworld it paid 19 installments at P216,666.66 on the P6,980,000.00 loan totalling

P4,116,666.54. It also paid P6,784,551.24 to settle the loan. Thus, Autoworld paid a total of P10,901,217.78 for a
P6,980,000.00 loan. It therefore overpaid P3,921,217.78 (obtained from P10,901,217.78 - P6,980,000.00 =
P3,921,217.78); (CA Rollo, Plaintiff-Appellants Brief, p. 24).
32

According to Autoworld the interest for P6,980,000.00 for twenty-three (23) months at 12% per annum is

P1,545,000.00. (CA Records, Plaintiff-Appellants Brief, p. 24).

There seems to be an error in the computation of Autoworld. The interest for P6,980,000.00 for 23 months at 12% per annum
is P1,605,400.00 (using the equation [(P6,980,000 x 12) 12 or number of months in year] x 23 months = 1,605,400.00).
33

Autoworld and the CA concluded that there was an overpayment as Autoworld paid a total of

P3,921,217.88 in interests when it should have only paid P1,545,400.00. Thus, Autoworld is entitled to a
reimbursement of P2,586,035.44.

VOL. 340, SEPTEMBER 21, 2000

749
Investors Finance Corporation vs. Autoworld Sales Corporation
senting overpayment arising from usurious interest rate charged by ap-pellee.

34

While we do not dispute the appellate courts finding that the first transaction was
a usurious loan, we do not agree with the amount of reimbursement awarded to
AUTOWORLD. Indeed, it erred in awarding only the interest paid in excess of the
12% ceil-ing. In usurious loans, the creditor can always recover the principal
debt. However, the stipulation on the interest is considered void thus allowing the
debtor to claim the whole interest paid. In a loan of P1,000.00 with interest at 20%
per annum or P200.00 per year, if the borrower pays P200.00, the whole P200.00
35

would be considered usurious interest, not just the portion thereof in excess of the
interest allowed by law.
In the instant case, AUTOWORLD obtained a loan of P6,980,000.00. Thereafter,
it paid nineteen (19) consecutive installments of P216,666.66 amounting to a total of
P4,116,666.54, and further paid a balance of P6,784,551.24 to settle it. All in all, it
paid the aggregate amount of P10,901,217.78 for a debt of P6,980,000.00. For the
23-month period of the existence of the loan covering the period February 1981 to
January 1982, AUTOWORLD paid a total of P3,921,217.78 in interests. Applying
the 12% interest ceiling rate mandated by the Usury Law, AUTOWORLD should
36

37

________________
Again there seems to be an error in computation. The difference between P3,921,217.78 and
P1,545,400.00 is P2,375,817.78, not P2,586,035.44. The figure P2,586,035.44 came from the equation
P6,768,806.91 -P4,182,771.47 = P2,586,035.44, where P6,768,806.91 is the amount actually paid by
Autoworld to petitioner to settle the P6,980,000.00 transaction (as claimed in petitioners memorandum
before the RTC, Records, p. 1245) while P4,182,771.47 is the amount which Autoworld claims it only
needed to pay petitioner to settle such transaction. That is why Autoworld was claiming the excess
payment of P2,586,035.44.
34

CA Decision; Rollo, p. 99.

35

Lopez Javelona v. El Hogar Filipino, 47 Phil. 249 (1925); Sanchez v. Buenviaje, G.R. No. 57314, 29

November 1983, 126 SCRA 209.

36

Angel Jose Warehousing Co., Inc. v. Chelda Enterprise, No. L-25704, 24 April 1968, 23 SCRA 119.

37

P10,901,217.78 - P6,980,000.00 = P3,921,217.78.

750

SUPREME COURT REPORTS ANNOTATED

Investors Finance Corporation vs. Autoworld Sales Corporation

have only paid a total of P1,605,400.00 in interests. Hence, AUTOWORLD is

entitled to recover the whole usurious interest amounting to P3,921,217.78.
We are not unaware of Sanchez v. Buenviaje where the Court allowed the usurer
to recover legal interest on the principal amount loaned. But such interest arose
from the debtors delay in paying the principal from the time of the creditors
demand. That is the reason why legal interest was counted only from the time the
creditor filed his complaint for the recovery of a debt. In this case however, the
debtor was never in delay. As a matter of feet, AUTOWORLD paid the principal of
P6,980,000.00 and the whole usurious interest of P3,921,217.88 upon petitioners
insistent demand. Thus, the case of Sanchez v. Buenviajeherein cited will not apply
to petitioner and it will not be entitled to legal interest on the amount of the
principal loan.
Under Sec. 6 of the Usury Law, AUTOWORLD is also entitled to reasonable
attorneys fees and costs
38

39

SEC. 6. Any person or corporation who, for any such loan or renewal thereof or forbearance,
shall have paid or delivered a higher rate or greater sum or value than is hereinbefore

allowed, to be taken or received, may recover the whole interest,commission, premiums,

penalties and surcharges paid or delivered with costs and attorneys fees in such sum as
may be allowed by the court in an action against a person or corporation who took or
received them if such action is brought within two years after such payment or delivery
(emphasis ours).

Although the Court has discretion to fix the amount of attorneys fees, it has no
discretion to deny it altogether. Thus, in Delgado v. Valgona, we held
40

When the right of action to recover interest paid upon a usurious contract is established, a
reasonable attorneys fee should be allowed as a matter of course, the same as costs are
awarded. The purpose of the law is to encourage persons who have suffered from contracts
of this character to come into court and vindicate their rights, and the imposition upon the
______________
38

[(P6,980,000.00 x .12) 12] x 23 months = P1,605,400.00.

39

G.R. No. 57314, 29 November 1983, 126 SCRA 208.

40

44 Phil. 739 (1923).

751

VOL. 340, SEPTEMBER 21, 2000

751
Investors Finance Corporation vs. Autoworld Sales Corporation
usurer of the obligation to pay attorneys fee will serve at once as an encouragement to the
oppressed and as a wholesome deterrent to the taking of usurious interests.

Quite obviously, Anthony Que, the President of AUTOWORLD, actively and

knowingly participated in the execution of the usurious loan transaction. As a
seasoned businessman he must have been aware of the consequences of his business
dealings. But, although we find his actions extremely reprehensible, we must abide
by the principle laid down in Go Chioco v. Martinez where we held that the pari delicto rule does not apply to usury cases
41

which entitle the borrower to recover the whole interest paid; otherwise, the avowed policy of discouraging usurious transactions would not be served, for the mere invocation of
the pari delicto rule would allow the usurer to reap the benefits of his unlawful act.

WHEREFORE, the assailed Decision of the Court of Appeals dated 24 May 1996
declaring the 9 February 1981 transaction as a usurious loan is AFFIRMED,
subject to the MODIFICATION that petitioner Investors Finance Corporation is
ordered to pay private respondent Autoworld Sales Corporation the amount of
P3,921,217.78 representing the entire usurious interest it paid on the 9 February
1981 loan, as well as P50,000.00 as attorneys fees and the costs.
SO ORDERED.
Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.
Judgment affirmed with modification.
Note.When an agreement has been reduced to writing, the parties cannot be
permitted to adduce evidence to prove alleged practices which to all purposes would

alter the terms of the written agreement. (CKH Industrial and Development
Corporation vs. Court of Appeals, 272 SCRA 333 [1997])
o0o
________________
41

45 Phil. 256 (1923).

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